If you earn over $101,000 as a single or $202,000 as a family and don’t have private hospital cover, the Australian Taxation Office charges an extra 1% to 1.5% on top of the standard 2% Medicare levy. That extra charge is the Medicare levy surcharge (MLS), and for high earners it can add thousands to a tax bill. This guide breaks down the 2025–26 MLS thresholds and rates, shows exactly how the surcharge is calculated, and explains the legitimate ways to avoid it.
What Is the Medicare Levy Surcharge?
The Medicare levy surcharge is an additional tax levied on Australians above certain income levels who do not hold an appropriate level of private patient hospital cover for the full income year. It sits on top of the standard 2% Medicare levy that most taxpayers pay.
The surcharge applies to individuals, couples, and families whose income for MLS purposes exceeds the thresholds set for each income year. The government’s policy intent is to encourage higher-income earners to take out private hospital insurance, reducing pressure on the public hospital system.
It’s important to understand what counts as “appropriate” cover. To avoid the MLS, you must hold private patient hospital cover with an Australian registered health insurer. Cover that is extras-only (dental, optical, physio and similar ancillary benefits) does not exempt you from the surcharge — a common and expensive misunderstanding.
Wondering how the standard 2% levy fits alongside the surcharge? Our Medicare levy calculator shows your Medicare liability in seconds, so you can see both charges side by side.
Medicare Levy Surcharge Thresholds and Rates: 2025–26
The MLS uses a tiered system. Once your income for MLS purposes crosses the base threshold, the surcharge rate rises through three tiers. Crucially, the surcharge applies to your entire income for MLS purposes — not just the dollars above the threshold.
Singles — 2025–26
| Tier | Income for MLS purposes | Surcharge rate |
|---|---|---|
| Base | $101,000 or less | 0% |
| Tier 1 | $101,001 – $118,000 | 1% |
| Tier 2 | $118,001 – $158,000 | 1.25% |
| Tier 3 | $158,001 or more | 1.5% |
Families — 2025–26
| Tier | Income for MLS purposes | Surcharge rate |
|---|---|---|
| Base | $202,000 or less | 0% |
| Tier 1 | $202,001 – $236,000 | 1% |
| Tier 2 | $236,001 – $316,000 | 1.25% |
| Tier 3 | $316,001 or more | 1.5% |
The family threshold increases by $1,500 for each dependent child after the first. So a family with two dependent children has a base threshold of $203,500; with three children, $205,000. The same $1,500-per-child adjustment lifts the Tier 1, Tier 2 and Tier 3 boundaries accordingly.
For singles, whether you’re tested as a single or as part of a family depends on your circumstances on the last day of the income year — broadly, if you have a spouse (married or de facto) or dependent children on 30 June, you’re tested under the family thresholds, and your spouse’s income for MLS purposes is added to yours.
How the Surcharge Is Calculated (Worked Example)
Because the MLS applies to your whole income for MLS purposes, the bill is straightforward to estimate once you know your tier:
Example: A single taxpayer with $130,000 income for MLS purposes and no private hospital cover sits in Tier 2, so the rate is 1.25%. The surcharge is 1.25% × $130,000 = $1,625. On top of that, they still pay the standard 2% Medicare levy: 2% × $130,000 = $2,600. Their total Medicare-related charges for the year are $4,225.
At Tier 1 rates, the numbers look like this: a single on $110,000 with no hospital cover pays 1% × $110,000 = $1,100 in surcharge, plus $2,200 standard levy. A single on $160,000 in Tier 3 pays 1.5% × $160,000 = $2,400 in surcharge, plus $3,200 standard levy.
Run your own figures through our Medicare levy calculator to see the combined effect on your take-home pay, or check what a specific salary means after tax with our take-home breakdown for a $120,000 salary.
What Counts as Income for MLS Purposes?
The income test for the MLS uses a broader measure than plain taxable income. “Income for MLS purposes” is your taxable income plus:
- Reportable fringe benefits (the grossed-up amount on your income statement)
- Reportable employer superannuation contributions (salary-sacrificed and certain other employer contributions above the compulsory level)
- Net investment losses, including negatively geared rental property and negatively geared financial investments
- Exempt foreign employment income
This matters because many people sit above the threshold only once these add-backs are included. A taxpayer with $95,000 taxable income plus $8,000 in reportable salary-sacrificed super contributions has $103,000 income for MLS purposes — over the $101,000 single base threshold — even though their taxable income is under it. Negative gearing doesn’t reduce your MLS income either: the rental loss is added back.
If you’re assessed as a family, your spouse’s income for MLS purposes (calculated the same way) is added to yours, and the combined figure is tested against the family thresholds.
How to Avoid the Medicare Levy Surcharge
The surcharge is entirely avoidable. The primary strategy:
- Hold appropriate private patient hospital cover with an Australian registered health insurer for the entire income year. The policy must cover you (and your spouse/dependants, if tested as a family) for every day from 1 July to 30 June.
Hospital cover doesn’t have to be the top tier. A basic hospital policy — one that meets the “appropriate level” rules, which generally means a policy with an excess of $750 or less for singles or $1,500 or less for families — satisfies the requirement. For many people, the annual premium on basic hospital cover costs less than the MLS bill they’d otherwise face, which is why the comparison matters: get a current quote, calculate your MLS using the rates above, and compare the two.
Be careful with waiting periods and coverage dates. If you take out hospital cover partway through the year, the surcharge is pro-rated by the number of days you were without appropriate cover. Cover for 273 of 365 days means you pay roughly 25% of the full-year MLS. And remember: an extras-only policy, an ambulance-only policy, or overseas travel insurance does not avoid the surcharge.
Medicare Levy Surcharge vs Standard Medicare Levy vs Income Tax
These three are often confused. Here’s how they differ:
- Medicare levy (2%) — paid by almost all resident taxpayers on their taxable income, subject to low-income reduction and exemptions. It funds the public health system.
- Medicare levy surcharge (1%–1.5%) — paid only by higher-income earners without appropriate private hospital cover. It’s calculated on income for MLS purposes, not just taxable income.
- Income tax — calculated on taxable income using the resident tax brackets. The MLS does not change your income tax or push you into a higher tax bracket; it’s a separate line item on your assessment. For reference, the 2025–26 resident brackets are: $0–$18,200 nil; $18,201–$45,000 at 16%; $45,001–$135,000 at $4,288 plus 30%; $135,001–$190,000 at $31,288 plus 37%; and $190,001 and over at $51,638 plus 45% — with the 2% Medicare levy on top.
What Changes from 1 July 2026?
The MLS thresholds are indexed periodically. From 1 July 2026 (the 2026–27 income year), the base thresholds rise: singles move from $101,000 to $105,000, and families from $202,000 to $210,000, with the tier boundaries above them adjusting accordingly. If your income sits just over the current thresholds, the lift may change your tier — but don’t bank on it until the ATO confirms the full 2026–27 rate table.
Frequently Asked Questions
What is the difference between the Medicare levy and the Medicare levy surcharge?
The Medicare levy is a flat 2% charge on taxable income paid by most resident taxpayers to help fund Medicare. The Medicare levy surcharge is an additional 1%–1.5% charge that applies only to people whose income for MLS purposes exceeds the thresholds and who don’t hold appropriate private hospital cover for the full year. You can be liable for one, the other, both, or neither depending on your income and insurance situation.
Does extras-only private health insurance avoid the Medicare levy surcharge?
No. Only private patient hospital cover with an Australian registered health insurer exempts you from the MLS. Extras cover (dental, optical, physio), ambulance-only cover, and overseas visitor policies do not count. This is one of the most common and costly misunderstandings around the surcharge.
What counts as income for MLS purposes?
Income for MLS purposes is your taxable income plus reportable fringe benefits, reportable employer super contributions (such as salary sacrifice), net investment losses (including negatively geared property), and exempt foreign employment income. For the family test, your spouse’s equivalent amount is added to yours. This broader definition catches many people whose plain taxable income is below the threshold.
I only had hospital cover for part of the year. Do I still pay the surcharge?
Yes, but only for the days you were uncovered. The MLS is pro-rated by the number of days in the income year you did not hold appropriate private hospital cover. If you had cover for 9 of the 12 months, you’ll pay roughly a quarter of the full-year surcharge amount. Check the exact start date on your policy — waiting periods and the date cover commences both matter.
Does the Medicare levy surcharge push me into a higher tax bracket?
No. The MLS doesn’t change your taxable income or your marginal tax rate. It is calculated separately and added to your assessment after income tax and the standard Medicare levy. It can, however, make a noticeable dent in your refund or increase your tax bill, so it’s worth factoring into your year-end planning.
How do I check which MLS tier I’m in?
Add up your income for MLS purposes — taxable income plus reportable fringe benefits, reportable employer super contributions, net investment losses, and any exempt foreign employment income (plus your spouse’s, if tested as a family) — then match it against the tier tables above. Singles use the $101,000 base; families use $202,000 (plus $1,500 per dependent child after the first). You can also use our Medicare levy calculator to estimate your total Medicare charges including any surcharge.
The Bottom Line
The Medicare levy surcharge is one of the few taxes in Australia you can legitimately reduce to zero with a single decision: hold appropriate private hospital cover for the whole year. If your income for MLS purposes is above $101,000 (singles) or $202,000 (families) in 2025–26, work out your surcharge using the tier tables above, get a current quote for basic hospital cover, and compare the two numbers — for many earners, the policy is the cheaper option. Either way, knowing your tier before 30 June means no nasty surprises at tax time. Estimate your full position with our Medicare levy calculator today.